Why do house prices appear to be out of sync with the annual cost of owning a home?
Housing markets aren’t perfectly efficient, and there are other factors that go into driving house prices beyond just the annual cost of owning. A big thing has to do with down payments. One of the reasons we see prices in booms start to run up more quickly is that when house prices go up, people who own a home get a big capital gain. That gives them money that they can use as a down payment to buy their next house. So you see a lot of trade-up activity as prices start rising, and that fuels the number of transactions, and it also fuels some amount of price appreciation as well. So there’s a bit of a self-fulfilling aspect to prices rising, not because people have unrealistic expectations of the future, which is what a bubble is, but just because they have more cash in their pockets from the appreciation of housing to date. Can you comment on where you think the housing market is headed? I think we’re starting to see helpful signs of the housing market slowing down. I don’t believe tha
